Tag (SQ): Sponsorship Agreements

The Heritage Art Gallery and Museum (HAGM) is in the centre of a city that is popular with tourists. About 65% of its revenue comes from admission fees and annual memberships, and about 30% of its revenue comes from sponsorship of special exhibitions by companies. Most of the remaining revenue comes from a small café and gift shop in the art gallery and museum.
Admission fees come from sales of tickets to daily visitors and from annual membership subscriptions from ‘Friends of HAGM’ who are entitled to free entry to the art gallery and museum at any time.
Day tickets can be purchased by credit card in advance, by a telephone ‘hotline’ or at HAGM’s website on the Internet. Alternatively, day tickets can be bought with cash or credit card at the ‘door’ on the day of the visit. Reduced prices are available for children, students and individuals aged over 65, and there are also special reduced-price ‘family tickets’ for two adults and two children.
Sponsorship arrangements are agreed up to 18 months in advance. Some corporate sponsors, particularly transport companies (bus companies and railway companies) sell advertising to HAGM.
The management of HAGM have identified the following applicable risks that need careful attention. They believe that these risks should be managed actively.

1. There is a failure to attract more visitors because of the poor condition of many of the paintings in the art gallery and of the items in the museum. Paintings must be restored regularly because their condition deteriorates. HAGM has just one specialist restorer, who is unable to keep up with the required volume of work. The management of HAGM recognise that investment in new items and the restoration of existing items is inadequate, but blame the lack of revenue for the problem.
2. Some corporate sponsorship agreements may not be invoiced due to poor communication between the sponsors, HAGM’s sponsorship managers and the accounts department of HAGM.
3. Some sponsorship agreements are not invoiced at their correct amount. This happens often when a sponsor is also a company that provides advertising for HAGM. Normal practice is for these sponsors to deduct their advertising charges from the amount they pay to HAGM in sponsorship. However, the accounts department in HAGM are not given the details of these set-off arrangements.
4. Some of the cash received from day visitors at the door may be stolen (or lost, or used by management for business expenses) and does not reach HAGM’s cashier.
5. The on-line booking system for buying tickets in advance on the HAGM website is not always available because the website is ‘down’.
   Required:
   (a) Describe appropriate internal controls to manage each of the applicable risks
   (b) Explain the financial statement risks that arise from each of these applicable risks